nep-fle New Economics Papers
on Financial Literacy and Education
Issue of 2020‒03‒23
seven papers chosen by

  1. Trust and Saving in Financial Institutions By Sebastian Galiani; Paul Gertler; Camila Navajas Ahumada
  2. Financial literacy and French behaviour on the stock market By Luc Arrondel
  3. Meet People Where They Are: Building Formal Credit Using Informal Financial Traditions By Tom Akana
  4. Active Trading and (Poor) Performance : The Social Transmission Channel By Escobar Pradilla,Laura Manuela; Pedraza Morales,Alvaro Enrique
  5. Household Savings in Central Eastern and Southeastern Europe : How Do Poorer Households Save? By Beckmann,Elisabeth
  6. What Determines Consumer Financial Distress? Place- and Person-Based Factors By Benjamin J. Keys; Neale Mahoney; Hanbin Yang
  7. Digital technologies for financial inclusion of smallholder farmers: Needs assessment in three states of India By Ceballos, Francisco; Kannan, Samyuktha; Singh, Vartika; Kramer, Berber

  1. By: Sebastian Galiani; Paul Gertler; Camila Navajas Ahumada
    Abstract: We examine the role of trust in financial institutions as a necessary condition for the wider use of formal financial services by the poor. We randomly assigned beneficiaries of a conditional cash transfer program in 130 villages in Peru to attend a 3.5 hour training session designed to build their trust in financial institutions. Using household survey data combined with high-frequency administrative data, we find that the intervention: (a) significantly increased the level of trust in the financial system, but had no effect on knowledge of the banking system or financial literacy; and (b) resulted in the treatment group saving 13 Peruvian Soles more than he control group over a ten month period and (c) had no effect of the use of bank accounts for transactions. The increase in savings is close to double the savings of the treatment over the 10 month period prior to the intervention, 7 times the savings of the control group over the same period, and a 1.6 percentage point increase in the savings rate out of the cash transfer depostis.
    JEL: O16
    Date: 2020–02
  2. By: Luc Arrondel (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PSE - Paris School of Economics)
    Abstract: This article looks back over the different dimensions of financial literacy: theoretical, methodological and empirical. First, the theoretical foundations of the notion of financial literacy are presented with reference to recent contributions by psychological or behavioural economics: "household finance" refers to the concept of financial literacy based on the empirical dead-ends of standard saver theory. This raises the question as to how to measure and evaluate it. Is the "standard" methodology, based on a few straightforward questions (interest calculations, notion of inflation and risk diversification), adequate or do other definitions need to be developed? As is often said, are the French really "useless at finance" ? Is their financial behaviour, in terms of their portfolio choices, affected by it ? And last but not least, how effective are economic education programmes and is a public financial literacy policy required?
    Keywords: Household finance,financial literacy,stock ownership
    Date: 2020–03
  3. By: Tom Akana
    Abstract: The Consumer Finance Institute hosted a workshop in February 2019 featuring José Quiñonez, chief executive officer, and Elena Fairley, programs director, of Mission Asset Fund (MAF) to discuss MAF’s approach to helping its clients improve access to mainstream financial markets. MAF’s signature program, Lending Circles, adapts a traditional community-based financial tool known as a rotating savings and credit association (ROSCA) to help establish or expand credit reports for participants who may not be able to do so through traditional means. Lending Circles have served more than 10,000 clients since 2007 and have expanded well beyond MAF’s core constituency in the Mission District of San Francisco. Quiñonez and Fairley discussed MAF’s approach to working with the communities it serves and shared the key successes and challenges that MAF has encountered. This paper provides an overview of the information shared in the workshop and additional research connecting Lending Circles to previous work on ROSCAs.
    Keywords: rotating savings and credit association (ROSCA); financial inclusion; credit invisibles; underserved; unbanked; fintech; financial technology
    JEL: D14 D71 D91
    Date: 2020–02–20
  4. By: Escobar Pradilla,Laura Manuela; Pedraza Morales,Alvaro Enrique
    Abstract: Active investors often generate inferior returns. Social interactions might exacerbate this tendency, but the causal link between peer effects and active trading is difficult to identify empirically. This paper exploits the exogenous assignment of students to classrooms in a large-scale financial education initiative to evaluate the transmission of trading strategies among individual investors. The paper shows that students assigned to groups where classmates have more trading background, are more likely to start trading after completing the program. These social effects are stronger when peers have experienced favorable outcomes. The paper documents a negative consequence from social interactions: students that registered for courses where peer returns are large, generate lower trading profits than other investors. The evidence is consistent with social learning under biased information -- people share their most successful experiences, encouraging stock trading among uninformed investors. The results shed light on the role of selective communication in the transmission and adoption of ideas, and more importantly, in the behavior of people expose to biased information. The findings show that social learning can lead to misguided decisions when peer choices are not accurately observed by members of the social network.
    Keywords: International Trade and Trade Rules,Educational Sciences,Gender and Development,Financial Literacy,Educational Institutions&Facilities,Effective Schools and Teachers
    Date: 2019–03–07
  5. By: Beckmann,Elisabeth
    Abstract: Based on a survey of households in 10 Central Eastern European and Western Balkan countries, this paper presents new and unique evidence on which households have savings and how they save. The paper shows that the percentage of savers is low, and savings are frequently informal. Formal savings are dominated by bank savings, and participation in contractual and capital market savings is very low in comparison to high-income countries. Poor households are significantly less likely to have any savings; income also has an effect, albeit smaller, on the choice of formal versus informal savings. With a high density of bank branches in Central Eastern European and Western Balkan countries lack of physical access to banks does not explain the lack of formal savings. Lack of trust in banks reduces the probability of formal savings, especially bank savings.
    Keywords: Educational Sciences,Capital Markets and Capital Flows,Capital Flows,Non Bank Financial Institutions,Mutual Funds,Financial Literacy,Insurance&Risk Mitigation,Social Funds and Pensions
    Date: 2019–02–19
  6. By: Benjamin J. Keys; Neale Mahoney; Hanbin Yang
    Abstract: We use credit report data for a representative sample of 35 million individuals over 2000-2016 to examine consumer financial distress in the United States. We show there are large, persistent geographic disparities in consumer financial distress, with low levels in the Upper Midwest and high levels in the Deep South. To better understand these patterns, we conduct a "movers" analysis that examines how financial distress evolves when people move to places with different levels of financial distress. For collections and default, there is only weakly convergence following a move, suggesting these types of financial distress are not primarily caused by place-based factors (such as local economic conditions, loan supply, and state laws) but instead reflect person-based characteristics (such as financial literacy and risk preferences). In contrast, for personal bankruptcy, we find a sizable place-based effect, which is consistent with anecdotal evidence on how local legal factors influence the bankruptcy filing decision. Individual characteristics determine whether you get into financial distress, while place-based factors determine whether you use bankruptcy to get out.
    JEL: K35
    Date: 2020–02
  7. By: Ceballos, Francisco; Kannan, Samyuktha; Singh, Vartika; Kramer, Berber
    Abstract: Financial instruments such as savings, loans, and insurance are critical tools in managing risk for smallholder farmers across the developing world. Although smallholder farmers are disproportionately affected by adverse events, they are the least likely to have access to formal loans, insurance, or bank accounts, leaving them less prepared to manage weather and disaster risk. As the effects of climate change intensify, building resilience—the ability to mitigate, cope, and recover from shocks and stresses without compromising future welfare—is essential for reducing rural poverty and improving food and nutrition security.
    Keywords: INDIA, SOUTH ASIA, ASIA, digital technology, technology, smallholders, farmers, data, mobile phones, insurance, willingness to pay, Picture-Based Insurance (PBI), financial inclusion,
    Date: 2019

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